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    Cutting off trade ties with China can be a double-edged knife, warns India Inc

    Cutting off trade ties with China can be a double-edged knife, warns India Inc

    Cutting off trade ties with China can be a double-edged knife, warns India Inc
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    By Rituparna Bhuyan   IST (Published)

    The clamour to boycott China-made products has risen to a crescendo after 20 Indian soldiers lost their lives on June 15th during a skirmish in a narrow and barren river valley located in the newly formed union territory of Ladakh. In Gujarat, people of a housing society were seen smashing a “Chinese” TV set, and in Guwahati, a consumer electronics shop stopped selling goods made in the country of the dragon.
    As the call for boycotting Chinese goods continues to top trend-charts in social media, globally reputed trade economists, veterans of Indian Industry and seasoned policymakers believe that retaliation through the trade channel is easier said than done.
    Let the consumer decide
    According to trade economist and former VC of Niti Aayog, Arvind Panagariya, the political push for using local products has been tried in many countries like the US, but without much impact. “People are smart and they know how to spend their money smartly,” he told CNBC-TV18 from New York early this month.
    Back in India, industry titans echo a similar view. Newly elected president of CII Uday Kotak said the choice of a product by a customer will continue to be influenced by his or her need.
    “Each consumer has a choice. If a customer decided to buy online Instead of going to a mall or a shop, the consumer is making that choice. I do not believe that the government is asking or forcing people not to buy from China. If people of India take a call that this is a consumer product of quality that makes sense to them they are making that choice out of their free will,” he told CNBC-TV18 after taking over as the CII president the week before last.
    Critical components
    While the Indian government has not officially endorsed a call for boycotting Made In China products, it has packaged a series of measures aimed at promoting locally produced goods under a campaign called “Atma Nirbhar Bharat.
    So far the government has maintained that the policy actions under the campaign will promote indigenous industrial capacity and won’t be protectionist in nature. But policy experts warn that any knee jerk action to restrict imports from China will end up harming the same domestic industry which the government seeks to nurture.
    “Lot of Imports from China are critical sector be it pharma industry where we get our APIs from and thereafter we export to the rest of the world," warned former industry secretary Ajay Dua.
    "Same is the case with automobiles. We have established our prowess in automobiles but just 4 percent of imports from China (in auto components ) are related to critical items. If these 4 percent items don't come many of our auto, mobiles won't be manufactured," he said.
    Dua’s view is supported by Rajiv Bajaj, Managing Director of Bajaj Auto, the world’s third-largest motorcycle maker. The company imports nearly Rs 1000 crore worth of components directly and indirectly from Chinese suppliers. The import bill in this company comprises about 3 to 4 percent of its material cost.
    “We import from China. But Bajaj is a company that also exports motorcycles and three-wheelers worth about Rs 15,000 crore every year. This import (from China) helps us to become competitive and helps us export. There is a lot of merit (for us ) in importing from China ,” said Bajaj.
    While the Pune based two and three-wheeler company directly imports made in China components, Delhi based auto major Maruti Suzuki maintains that import curbs will hurt the company even though it doesn't directly buy auto components from China.
    “The components that come in from China generally go into the supplies from vendors, the various assemblies and components that come from the vendors, they incorporate most of the Chinese imports,” said R C Bhargava, Chairman of Maruti Suzuki India Ltd.
    Snapping long standing ties
    Both Bajaj And Bhargava also point out that any move to stop Chinese imports will mean cutting off long term and reliable relationships with suppliers.
    “It is not easy for these (Indian) vendors to find alternative sources as it takes a lot of time. What is more important is that it will take a lot of cost penalty on the side of the vendors which ultimately mean a cost penalty to the consumer,” Bhargava said.
    “The suppliers in China are our friends who have invested a lot of time and effort and money, who are supplying to us not a vicious virus but some wonderful wheels for at least 15 years. How do we suddenly let them down? Even if we could, is that ethical. Is that something that we would stand for as a company and as a country,” Bajaj said.
    Trade guru Panagariya maintains that it is critical to maintain competitiveness of the Indian industry, even if it means importing intermediate goods that go into making of made in India products.
    “Import curbs makes no sense. You buy goods where you get them the cheapest. And if Chinese are selling us goods cheapest then so be it,” he said.
    Duty hike to hurt Indian consumer
    Meanwhile, there are inter-ministerial consultations going on regarding proposals to impose customs duty on goods that are primarily imported from China. Trade economists believe that hiking duties to restrict imports is a futile exercise when it comes to a country like China.
    “Two years back the government took some measures in increasing tariffs and we saw imports from China come down. But then imports from Hong Kong has gone up. Suddenly Hong Kong as an import source has jumped from 11th position to 4th. China repeatedly deflects exports from the mainland to other countries. China has a huge footprint in South East Asia. They work through their production networks,” said Biswajit Dhar, professor at JNU.
    R C Bhargava maintains that it is ultimately the Indian customer who will be impacted due to hike in duties.
    “I don't see how raising tariffs and increasing prices of goods that use Chinese imported (components) is actually going to benefit the Indian citizen at all. It is more of an emotional reaction to the border problem I don't think that its a well thought out solution,” Bhargava said.
    The way forward
    Pharma industry veteran Kiran Majumdar Shaw believes that instead of being reactionary,  India should focus on furthering its interests with China. “There is an axis that is pivoting away from China and it seems it is pivoting towards India. But that doesn't mean that India should cut itself away from China because we also can be very smart. I think we should be in a position to partner and collaborate with anyone and everyone as it suits us. That is the balance we need to keep,” Shaw told CNBC-TV18.
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